Paul Martin may be a friend of Royal Bank chairman John Cleghorn, but that does not make him a friend of the banks. The finance minister has his own personal story about the trials of dealing with bankers. As a Montreal businessman in the high-inflation days of the early 1980s, Martin struggled to keep his shipping company, Canada Steamship Lines Inc., afloat under the weight of $180 million in bank loans. He remembers sweating every upward tick in interest rates. “Politics doesn’t take guts,” he told a reporter in the mid1980s, furious at suggestions he was afraid to run for office. “Staring bankruptcy in the face every morning—that takes guts.”
So Martin has a good understanding of the distrust many Canadians feel towards their omnipotent banks. Although he displays a bankers’ affection for sober blue suits and spending cuts, he has also made it clear that the banks are their own worst enemies in the arena of public opinion. In his early days as finance minister, he told a private gathering of senior bankers that Canadians were mad at them and had every right to be. The bankers never forgot where he stood. Cleghorn and Martin have weekend retreats in Quebec’s Eastern Townships, and the Royal Bank chairman has enjoyed a good guffaw at Martin’s difficulties with using automatic teller machines. But when Cleghorn and Bank of Montreal chairman Matthew Barrett decided to merge their banks last week, they coldly and deliberately opted to blindside Martin.
Not that the finance department was unaware of the industry’s eagerness for mergers. Cleghorn was in Ottawa a day before the deal, giving yet another speech on the virtues of bigger banks. But the Royal and the Bank of Montreal surprised the capital by moving before the government’s Task Force on the Future of the Canadian Financial Services Sector delivers its report, expected in September. An aide to Martin, noting that the panel is almost certain to come down in favor of allowing mergers, wondered why the banks “did not wait and allow the debate to be around the broad issues rather than around this one. It doesn’t make sense.” Even Reform party finance critic Monte Solberg, who favors bank mergers as part of a broader push towards deregulation, could not understand
the timing. “This was not the best strategic thinking,” he said.
But the banks were hardly in the mood to wait. Even if the task force does submit its report on schedule, the debate on mergers could easily be dragged out before a parliamentary committee, by which time a Liberal leadership race could encroach and delay matters even further. In any event, Martin hardly seemed inclined to do the banks any favors. Two years ago, he turned down their requests to get into the insurance and car leasing businesses. “It became the perception in the boardrooms that it is a mistake to ask permission,” says Richard Rémillard, a former aide to Tory finance minister Michael Wilson and onetime lobbyist for the banks. “The bankers live in a rapidly changing world where you don’t have four or five years to wait for a process whose outcome is uncertain. So you don’t ask. You just do it” In doing so, Cleghorn and Barrett clearly calculated they could circumvent Martin. “Paul’s got a problem—he’s got to move to the left politically if he wants to be leader some day,” said one bank executive, explaining why the banks considered the finance minister an obstacle. For the banks, the key to seeing the merger through is Prime Minister Jean Chrétien (seen as an honorary member of the pin-striped brethren because he was a Toronto-Dominion Bank director in the mid-1980s). And the key to Chrétien’s heart, they believe, is winning over the government’s powerful 101-member Ontario caucus.
The banks are confident that Cleghorn, whose down-to-earth style contrasts with that of the flashy Barrett, can do the job. Cleghorn has told aides he wants to meet the liberal caucus and show them the light. “He can meet our committee but he can’t come to closed caucus meetings,” says Tony Ianno, a Toronto MP who chairs the party’s committee on financial institutions. The lobbying has already begun. As soon as the merger was announced, Ianno began receiving calls from Canadian bankers, urging him to support the deal. “I say the same thing to them all: You tell me the benefit to Canadians,’ ” Ianno says.
On the surface, it is hard to see what there is for Liberal backbenchers to like. “First, you’ve got the rural MPs, where some banks have been pulling out of town,” says Ianno. ‘Why would they be for it? Then take cities like Hamilton, Sudbury, Ottawa, where closing branches means losing jobs.” Ianno has already heard from a lot of MPs. “So far,” he says, “no one likes it.”
The liberals can still be convinced, of course. But bankers and politicians have never been terribly close. In the early 1990s, Cleghorn, then the Royal’s president, appeared before a Commons committee to explain why credit card rates were so high. New Democrat MP Phil Edmunston looked him over and brazenly suggested he was lying. Cleghorn might remember that when he visits Ottawa again, looking for support to build an even more powerful bank.
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